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Payments Innovation: The Fed Presses for More Changes

  • By Magnus Carlsson, Manager of Treasury and Payments, AFP
  • Published: 9/29/2015
chicagowaterCHICAGO -- Payments innovation was the central theme of this year’s Chicago Payments Symposium, held last week at the Federal Reserve Bank of Chicago. Participants from major players in the payments industry gathered to discuss important topics in payments, including faster payments systems, fraud and security.

Thomas Koulopoulos, chairman and founder of the Delphi Group, set the overall theme of payments innovation in his opening speech. He challenged treasury, finance and payments professionals in attendance to consider new ways to think about innovation and risk, and to change behaviors that drive work life in the hyper-connected cloud.
Key developments

Koulopoulos’ presentation was followed by panel discussions on the progress and challenges in reaching trusted and ubiquitous innovation. Panelists delved into various topics including blockchain studies and bitcoin, and the fact that existing debit networks actually already are interoperable and real-time.

The Federal Reserve discussed the progress being made at the Faster Payments and Secure Payments Task Force Meetings. Even though these task forces have grown to include a large number of participants, the diversity of these groups is very important. That way, they can ensure that all stakeholders views and opinions are heard. By taking all this input into consideration, it can ensure that the final outcome will receive a broader acceptance. This is particularly important since there will not be any mandate forcing market participants to use the new system, as was the case with the Single Euro Payments Area (SEPA) in the European Union.

A panel presented the B2B Directory, which is currently going through a proof-of-concept. An early version of the application will be presented at the 2015 AFP Conference in Denver.

Chris Hamilton, CEO of the Australian Payments Clearing Association (APCA) presented some of the work that has been done around the New Payments Platform (NPP) for low value payments in Australia. Set to go live in 2017, the NPP is fast, versatile and data rich, using the ISO20022 payments messaging standard, allowing for maximum flexibility in automated data processing. The speed of the NPP will make funds accessible almost at the same time they are received, even in instances where the payer and the payee have different banks.

Innovations in security and authentication were also discussed. Biometric authentication in particular is seen as something that is growing in importance, along with tokenization. Often when tokenization is discussed, the use of phone numbers as tokens are commonly accepted, but from a global perspective, the use of email addresses is a better option as these are unique all over the world.

Key challenges

Discussions also touched on challenges to innovation, with a look at the role of cash and checks in the five-year range. The general sentiment among the panelists was that these payment methods will still be around for the foreseeable future, as they still are the most ubiquitous payment methods in use.

Another significant challenge to payments innovation is the gap that exists between the “Gang of Five” (Amazon, Apple, Facebook, Google and PayPal) and banks and payment providers. One reason for this gap is that the legacy systems are 30-40 years old and were developed in a very different technology timeframe.

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